Speaking to CNN, former Shell Oil President John Hofmeister warns that, although American oil consumption may have already peaked, high prices at the pump could come back with a vengeance over the short and medium term.
The issues that gave rise to high priced gasoline in 2007 and 2008 are repeating themselves, except the world demands even more oil in the next several years than before. Asian growth is continuing, e.g. 17 million new cars per year just in China, and will demand more oil. U.S. economic recovery has brought demand back to where it was before. Economic growth means even more demand. But the U.S. Government is prohibiting expansion of U.S. domestic crude oil production which puts upward pressure on global crude oil prices… If we stay on our present course there is no question but that prices will rise to the $5.00 gallon level by 2012 in my opinion.
With profits returning to the auto industry in large part thanks to rebounding sales of large cars and SUV/Crossovers, this is the kind of warning that should ring out in the headquarters of the major manufacturers. Gas prices have been on a subtle upward trend since bottoming out at just over $1.60 in December of 2008, and the national average seems to be creeping up to the level it was at before it skyrocketed to over $4/gal in the Summer of 2008. Which makes you wonder: will the automakers be better prepared to deal with a spike in gas prices this time around?
On the dealer level, it’s clear that trade-in values on large SUVs are hurting, even though sales of new trucks and SUVs are generally on the rise. CNW Marketing tells USA Today that SUV resale prices are tracking some 20 percent lower than Kelley Blue Book list value. That would be bad enough if dealers weren’t so desperate to move new trucks and utes that they’re willing to take on the trade-ins regardless. One anecdote tells the story:
“It’s a challenge,” says Adam Lee, president of the family-run Lee Auto Malls dealerships in Maine. “How do you tell a good customer, ‘You paid $32,000, and now it’s only worth $17,000?’ ”
The answer: delicately. Lee says his sales force has been making SUV trade-in deals by “pretending there’s no energy crisis when we take them.”
Students of the Carpocalypse can tell you how much good “pretending” does when your business relies on externalities like credit availability and fuel prices: not much. Reality is reality, and in the words of one of KBB’s Alec Gutierrez in Automotive News [sub]
The days where a dealer could just go to auction and stock up on a bunch of SUVs and hold them for 40 or 60 days are over.
The Ford Escape, the Nissan Rogue, the Honda CR-V and the Toyota RAV4 — the compact crossover segment — that’s where we’ll see a lot of growth in terms of production and sales overall. The American consumer still generally wants to have a vehicle that offers a lot of utility but at the same time they are conscious of the fuel economy that the vehicle offers and what they are going to pay at the end of the month.
If you see a 20-to-30 cent price increase per gallon over the course of a couple weeks then of course people are going to panic, but if it increases steadily over time that gives the market a chance to react rationally
I was paying $6/gallon for gas living in London and Amsterdam over ten years ago. I hope it happens here well before 2012 and gets the road hog SUVs off the road. Overall traffic will go down, roads will not take such a beating and hopefully public transportation improves. I love cars, but miss European quality public transport.
It is difficult, nay, impossible to make these kinds of predictions. Although it would not surprise me at all, the prediction appears to be based upon increasing Asian demand. However, if demand in China slows (possibly due to its own internal economic contradictions), and if the US continues to flounder without real growth (likely), and if deflation occurs, then all bets are off.
Whatever the case, no one should buy anything they cannot support. And one should always be thinking of an uncertain future. But, then again, when it comes to cars (and women), few think rationally.
+1 Predicting oil prices is not an easy thing. If you’re so sure that the price will be $5/gal then I would suggest you buy some oil futures.
Time to start stockpiling used Geos in the back yard!
mpresley makes some good points about forecasting. It is part art, not all science.
Keep in mind that the forecast does not take into account disruptions in supplies such as a hurricane in the Gulf of Mexico, political instability in the Middle East or Nigeria, or a loon’s behavior in Venezuela.
That said, I think I need to dump my Element sooner rather later. In a year’s time, I would not be surprised if the used price does not fall 50% given the above forecast.
COOL!…When gas is $4+ I’ll sell my POS ’99 Protege, and get a used CHP Crown Vic or Some old Lady’s old Grand Marquis.
+1
I’m waiting for the next price spike to “steal” a later XJ Cherokee or WJ (99-04) Grand with the I6. As it would only see 2-3k miles per year the fuel economy is irrelevant.
> the national average seems to be creeping up to the level it was at before it skyrocketed
This sounds like “chartist” speculation, or do you have reason to think the price threshold will trigger buying?
Although compact cars should see a bump, i agree that $5 fuel + dilapidated roads would favor CUV sales.
If we stay on our present course there is no question but that prices will rise to the $5.00 gallon level by 2012 in my opinion.
But of course. Because there isn’t anything more American than a custom manufactured energy crisis during an election year. Why, I’ll even predict that 2012 gasoline prices will hit their peak toward the end of September, stabilize in October, and a sharp decline starting conveniently on November 7th.
The average voters memory is so short; I remember 2000; and its time to turn the dial up anyway. Americans have grown use to $3 a gallon, time to turn it up a notch.
Yep. I expect to see Daddy Bush donning his flight suit and taking the back seat of that SR-71 trainer and heading back to Paris to cut a deal with the Lizard People, I mean Iranians or the neo-English Monarchists.
Outside of an expected increase in oil demand as global economies recover in 2012, there is another fundamental element that will impact US gas prices over the long term.
Unfortunately, there are a lot of inflationary forces at play in the global economy. Many countries are engaging in QE or competitive devaluation of their currency. So when you increase the US money supply via QE policies you are weakening the dollar, and weakening the buying power of crude oil.
This will play a major role in if Americans are paying $5/gallon for gasoline or not. If the dollar is still weak in 2012, then expect gas prices to surge in the US. We are starting to see inflation boil over in China over this Christmas. Hitherto, the US federal government has been primarily concerned about deflation not inflation, but depending on how this is played out over the next year this can quickly turn into unexpected inflation. Especially if inflation worries in countries overseas forces countries like China to stop devaluing their currency, which will further weaken the dollar.
Regardless, in the near-term we are expecting to see gas prices fall in 2011 from where they are now.
your comments are more on the mark than any others. as countries move away from trading in dollars and it loses it’s position as the world’s reserve currency, the decline in the dollar’s value will create hyper inflation. this is already happening now. Russia and China have agreed to trade without dollars. the Arabs are approaching using a basket of currencies and gold. I see gas at easily above $5 before the end of 2011. you can’t print untold trillions of dollars and have them hold value. oil won’t rise in price because of demand anywhere near why it will rise due to the actions of The Fed. in fact I see $7 + per gallon by 2012. remember people called me nuts years ago when I predicted the sale of GMAC and the bankruptcy of GM. don’t assume things can’t happen just because they’ve always been a certain way.
Time to mothball the Metro and sell the S10!
EN,
See, the change to smaller more efficient vehicles is coming.
But at $5 a gallon of gas, automakers all over the place are going to have big problems. Lots of SUV and CUV factories will be idle. People who are buying, will be buying small, but they may not be buying at all if trading doesn’t make sense and if the economy isn’t good. $5 a gallon for gas would do very bad things to the economy. But you would get your smaller vehicles.
Unfortunately our Gov’t can’t seem to do the right thing and inspire Americans to buy more fuel efficient cars by taxing consumption of gas and using those funds for road improvements (and reducing our income tax for said amount). Nope – that’ll put their necks on the line and not enough lobbyists pushing this agenda with money in their pockets for them to take the risk. This would help us stop having this cyclical sticker shock from low mpg vehicles and the complaints I hear of why it is so expensive and they can’t afford to fill up their gas guzzler (never mind the lack of foresight if gas prices went up which they have historically done).
It is not a government business. If you are afraid of future gas prices – buy yourself a small-engined car. If you are not or simply need a bigger one – get that.
What you suggest is government turning profit out of many folks’s need. Been there seen that.
For all you government-praying know-betters and do-gooders it would be so beneficial to spend a few years in a country like USSR or North Korea – where government decides EVERYTHING – just to get real.
> For all you government-praying know-betters and do-gooders it would be so beneficial to spend a few years in a country like USSR or North Korea
Yawn, end-of-year troll – because there’s NO examples of energy policy other than USSR, PRK, or USA.
The USSR still exists?
I’ll be ready with the world’s smallest violin once the suckers in Exploders, Tahoes and the like start whining about the high gas prices.
I don’t mnd the Feds minding my MPG business, it’s for the national good, but damn THE INSURANCE IS TOO HIGH! Hey! Washington, we got uninsured and under-insured motorists out here that need help. FAST! Hurry. The rolling wounded are piling up in the 24 hour collison shops trying to pay with some shit they call cash, I say NO! No More! Affordable car insurance is a basic human right like the gas alotment.
The Constitution of the United States does not say the government will inspire anybody to do anything. And taxes as method of behavioral modification don’t work very well. If they don’t like something (like cigarettes) then have cahones to just ban them.
Acubra,
It is government business to stabilize the economy so having a high gas tax to stabilize the gas price is good government policy
windswords,
Cocaine is illegal and thus unobtainable in the USA. Taxing doesn’t work very well but it also doesn’t cost much (in money but especially freedom)
Acubra – I’ve never been to the USSR as it folded 20 years ago but I’ve been in North Korea twice – not much to see there. I like how reducing our income tax and making it up with a gas tax to wean US citizens off low mpg vehicles for national security equates our Gov’t to a communist or totalitarian regime. Since I’m disagreeing with you does that now evoke the Goodwin principle that I’m Hitler?
future gas prices are always unpredictable. It’s not smart to ‘plan’ for $5 gas whether you are a car OEM or a consumer. What we all should do is HEDGE.
i.e. I drive a conventional car with unspectacular MPG, but I hedge on oil prices by owning a few thousand dollars of oil (in my case in the form of USO ETF).
Companies such as GM hedge with their EV projects such as the Volt. Currently, critics rightly point out that the Volt, while technically impressive, is not practical or economical. However, GM benefits from the Volt by developing internal expertise, a positive halo/marketing effect, and they possess a HEDGE against $5 oil. If oil really does hit $5 or $6 a gallon, all of the sudden, that Volt in their back pocket suddenly becomes very, very valuable.
You can hedge on an individual bases but that is not possible on a collective bases as there are simply to few on the other side of the option
@asapuntz
I guess you missed Cuba? Have you bothered to take a look at the cars they are driving? Their entire economy has been stunted (by government policy) in the year 1957.
When the government holds the power to decide ANY power in significant amount, they can also easily control the energy policy and it is almost always what they end up doing, to the detriment of the nation’s economy.
@Amendment X
More like they’ve been knocked into submission by a draconian embargo that our government still stubbornly refuses to remove. Sure, let that market continue to swirl the drain just because it’s a communist country. So what? It’s another market that could have been exploited. Do you think Cubans would give a crap about who runs our country as long as they could drive BRAND NEW AMERICAN VEHICLES? Think about it.
“More like they’ve been knocked into submission by a draconian embargo that our government still stubbornly refuses to remove.”
Regardless of whatever one thinks of the US embargo, the Europeans have been trading with Cuba a while, and in any Chinese duty free shop one can buy a variety of Cuban cigars. So it’s not as if Cuba’s problems are primarily related to US trade. Any rigid command economy is not going to thrive. Look what the Chinese have done in 30 years since Deng Xiaoping began reforms, and they are still politically Communist. Blame it on the Castro boys, but don’t blame it primarily on the US.
The American embargo is not responsible for Cubans not having nice cars or anything else. They can trade with lots of other countries. Not only do they not have new American cars, they don’t have new VW’s, Toyota’s, or Kia’s. And they don’t have new appliances from LG (Korean). Why? Because they can’t afford them. They are poor. They are poor because their government and more importantly their economic system sucks. I don’t see Michael Moore moving there. If he did they would force him to lose weight by withholding food from him.
Network effect, which is really important in the economy, says that the embargo is the reason why Cuba is so poor.
charly,
So what you’re saying is that because the US will not let GM sell a new car in Cuba that VW, Toyota and Kia won’t either. Cuba’s problems are of it’s own (government’s) making.
Selling isn’t the problem. Buying is. Using Cuba as garden for the Eastern seaboard alone would double its income
Two words: Peak oil.
Oil is finite and we’re going to have less production in the future. It’s becoming increasingly clear that it is not possible to produce any significant amount more than is being produced now – many OPEC countries are pumping as much as they can, Saudi and such are saying “$100 per barrel oil is no problem” when before they were “very committed” to $30 oil, $40 oil, $70 oil, etc. Oil is increasingly coming from hard to produce areas like oil sands and deepwater with lower returns on energy invested. Nobody is finding the several new Saudi Arabias of oil needed to power China, India, and Brazil up the US consumption. The IEA, usually a cheerleader for oil producing nations, has admitted we’ve passed peak conventional, though they say “new finds” and unconventional sources will keep the level of production basically flat… Knowing their history, that means we can expect an arrow downward.
You can argue, you can deny, you can ignore it, but it’s just the way it is. Oil is almost definitely headed to $5 a gallon, unless economic disasters due to expensive oil mean it’s $1 a gallon and nobody can afford it… I expect it to be a serious issue in the next 5 years. We will continue to hit energy crisis after crisis. We will probably open up everywhere – even the Gulf and Atlantic off Florida – eventually, and we will see that’s not enough to make even a dent. It is not a political problem, it is not a technological problem, it’s a physical reality we are dealing with.
That’s just life. We will have to find a way to live with it. I expect cars will be around for a while yet, but as for SUVs in every garage… not likely.
Hear, hear! Judging by the comments, very few people have faced the grim reality that oil is getting scarcer by the day, and it is of course just a question of time before we run out of usable oil. With the emerging economies of China, India, Brazil all wanting to tap into the oil feed, the imbalance between supply and demand will only get worse. And, just like a cold winter is no reason to call off global warming, a fall in gas oil/gas prices is definitely no reason to call off peak oil. Oil prices can and will vary, but the long term trend is unmistakable and unavoidable, higher, higher, higher.
Damn straight, a few cold winters is no reason to call off global warming, it’s just like life is just a blip on the universal entropy graph. Give up, be sad, buy a sweater, drink warm weak tea, wear a your mittens and go to Sunday School. You’ll feel better about everthing, even $7 gasoline.
The sure thing to do when the “peak oil” and other resource scarcity namby-pambies come out of the woodwork is to bet against them. They are almost always wrong, and was Mr. Malthus. See more here: http://www.nytimes.com/2010/12/28/science/28tierney.html?_r=1
The American people have only themselves to blame for this mess.
When gas prices started going down, people went right back to their wasteful habits. Of course, they are going to panic but instead of blaming themselves, they’ll blame someone else.
The American people have only themselves to blame for this mess.
Well…yes and no. Americans can’t control the oil demands of China, India, and any other emerging markets. That’s playing a large factor in this latest trend, and will likely get worse. Americans CAN control their own usage. I agree that as soon as the last spike went down, many rushed out and bought large trucks/SUVs like it was the 90s. Looks like my Corolla will get a new lease on life – I just replaced the battery and serpentine belt from Autozone. Tranny fluid next. Looks like my wife’s small SUV will stay in the garage more. Glad we have it though – it tends to snow in northern NM, southern CO.
Oh, one last thing car_guy2010, speak for yourself, not for all Americans.
Expert predictions of the future are about as accurate as a flipped coin. And the more radical or cliched – such as the claim that skyrocketing energy prices are “inevitable” – the more we believe them. We are hopelessly hooked.
I’ll take the lessons of history over this noise any day. History suggests that while energy prices do rise with (or slightly above) the cost of living, our perception is skewed by temporary price spikes. Every so often we succumb to “new era” thinking, like Peak Oil Theory. We dress it up in scientific robes, trot out a parade of experts who agree, and mock those who don’t. And then, like clockwork, we forget all about it. Plus ca change, plus c’est la meme chose.
$5 a gallon gas will happen. We don’t really know when. Each of us has to be ready. Fingerpointing won’t help. Blaming your neighbors for what they do won’t help. Blaming a government won’t help. Blaming our history won’t help. Blaming the oil companies won’t help.
It is up to each of us to accommodate this new reality.
Let’s try to be civil. Our next vehicles can be more fuel efficient. We can start to realize how many miles per gallon per person a vehicle gets, instead of just jamming five people into a tiny car not designed to seat five people because we don’t want to get snotty attitudes from those driving tiny cars. It is time to realize that some of us need bigger vehicles because we have big families and some of us need bigger vehicles because they haul lots of things that help us be productive.
It was rather silly to hear all those who do not, nor will ever drive a SUV, castigate those who do. This is still a free country which allows us our personal choice to fit our personal needs. Getting all emotional like we saw a couple of years ago isn’t rational, intelligent or fair. People really try to do their best with the resources they have. We have to have more faith in one another’s choices in order for each of us to keep our own freedom of choices.
It seems that with every government action, we get dozens of horrible unintended consequences. Look at biofuels, for crying out loud. What a stupid bunch of crap that is, and we spent billions we don’t have creating this stupid bunch of crap, right? We allowed politics and emotions to over-ride common sense, rational market laws, and science. We have to stop looking to Washington or Sacramento to lead us towards solutions because we have discovered that clueless legislators and politicians can use their powers to wreck everything.
$5 gallon gas will arrive. Let’s get to work to ensure that each of us and our families does not get hurt when it happens. And stop raving at those who disagree with you. That is the best we can do.
Our country is as “free” as cheap fuel allows it to be. When the oil runs low, so will our “freedoms”.
Our freedoms are given to us by our creator, not by a government nor a market. Even when societies extinguish freedoms, they are never lost because societies are not the source of our freedoms. The last Century demonstrated that a society which extinguishes freedoms cannot function for long. Any society which trammels freedoms do so at their own peril. Any market which curbs entry into it, cannot function on it’s own and eventually collapses.
If the Market can handle pump prices high enough, it opens huge reserves of oil tar and shale to commercial development. The Athabaska Tar Sands contain enough oil for several generations, but not at $4 per gallon pump prices.
Can’t any of you see what all this means? This is simply a master-minded plot by General Motors (and Ford), the UAW and the President to ensure the Chevy Volt sells in record numbers, surely to pass the one-million-in-a-year mark held by the Chevy Impala many years ago. This will be followed by special incentives on American hybrids and the death of the pick-up truck except for legitimate business and farm use and the re-introduction of the El Camino and Ford Ranchero. Oh, yes, the eventual death of the CUV and the resurrection of the honsest-to-goodness STATION WAGON! Educator Dan, you may thank me now! For those who can’t afford any type of truck, they will simply use the time-honored practice of taking an old sedan, removing the trunk lid, sawing off the rear cabin and affixing plywood with a rear window cutout. Of course, this means all the Panthers will be sacrificed to acheive this, as you would need a BOF vehicle. See how simple this all is?
I’ll hold on to my 1.6L Civic for now…I was going to anyway.
Still holding onto the neon as 4-month-a-year transport & the motorcycle for the other 8….
That gets me 30mpg mixed & 43mpg mixed respectively. What do I downsize to for $5 gas? A 250cc? I need to be able to do highway speeds comfortably…
Hmmm $4.00 per gallon gas along with the housing crisis brought us to one of the worst recessions ever. Lets see how $5.00 per gallon will work. Oil should be pulled right out of commodity and stupid Wall greed and there unrealistic speculators. Welcome to global hell everybody.
Natural gas is about as perfect a silver bullet as I can see to ease pressure on oil prices in the near future. It’s MUCH cleaner, it almost exclusively developed here in the US, and it’s cheap. The technology is there, and it would make an excellent bridge until electric vehicles are more than just niche-market prototypes.
If Americans could have SUVs for only slightly more money that burned 90% cleaner, used no foreign oil, and only cost $20.00 to “fill up”, I think all sides would be happy until electric vehicles became affordable to the masses.
$5.00 a gallon by 2012 is a bit of hyperbole though, but I could easily see $4.00 a gallon by 2012.
Industry that is tightly linked to the oil price are ahead of the curve on this, well, apart from the usual laggards at GM.
At a recent energy conference Professor Kjell Aleklett presented interviews with heads of Volvo Trucks, Toyota Europe, Qantas and Airbus. Volvo/Airbus are predicting $150/bbl by end-2012, Toyota declined to give the number they’re working with, but I would suspect it’s the same as Hino who like Volvo are expecting at least $140/bbl. Qantas say there won’t be a viable airline industry if oil hits $160/bbl again.
The head of Airbus went on to say the the price will never climb beyond $180-$200 because if it did, the world economy just can’t absorb it; recession again. The problem this presents is the much claimed price-causes-innovation meme falls apart. Market failure, again.
Access to existing oil is declining probably close to 6%/yr (pretty fast actually), it’s not a doomsday cult, it’s a scientific fact, but the transformative energy policy the US needs is suppressed because of the noise-makers in the anti-change, pride-in-stupidity set who misrepresent the lessons from history and science.
Hofmeister is basically saying “Drill Baby, Drill”, but floats the carrot of defending “cap-and-trade”, but only if the administration lifts offshore drilling bans so that Big Oil’s profits can be increased (beyond their present outrageous levels) to cover the cost of C&T.
OK, let the hydrocarbon producers control the 21st century’s energy policy as well – no harm can come of it, right?
How ’bout WE take the future, and work very hard on renewable energy (like the Apollo program of the 1960’s) so we aren’t puppets of the oil, gas and coal companies who WILL DRILL for oil, DRILL for gas, DRILL to store CO2 and DRILL our wallets for the “privilege” of living with a 20th century energy policy, obfuscated with the window dressing agreed to by business and government interests that worship money over all, NOT American “freedom”.
(Not to mention that the USA and Canada will become scarred, Swiss Cheese nightmare landscapes if we choose to satiate our energy needs at today’s levels in perpetuity.)
I remember hearing the clarion call during the recent election of not saddling “our grandchildren” with massive debt (which is a code word for any progressive government policy, like green energy initiatives, that doesn’t show an immediate payoff) – what about leaving our grandchildren at the mercy of a few giant energy suppliers, doling out dwindling resources at higher and higher prices, while clean energy technology emerges everywhere else in the world while we’re behind the 8-ball?
Edit: Sorry for the (predictable?) rant – but I think that America (the greatest country in the world) is being held back by greedy special interests who appear to be waving the American Flag, until you look up and see that it’s not the “Stars and Stripes”, but the almighty dollar. Exxon-Mobil offshore as much money as they can, so they can avoid paying US taxes – and yet they’re the first ones to flag-wave when they want to destroy our country (offshore/Alaska drilling), by touting their version of “energy independence”.
I’d jump right on this soapbox that our leaders (whether GOP or Dems) are really only interested in satisfying their lobbyist and special interest groups. Especially those senators who stay in office for basically life and we do not get a fresh influx of blood and common sense. After 2 terms any member of Congress is no longer a normal hard working American. They now live an elite, exclusive life and no longer have the normal concerns of who they represent. It seems only the rich run for office and the only voices we hear are the idiots who have all the time on their hands and scream the loudest. Voices like ours are infrequent and quiet most of the time b/c we are rational, mature and got “shit” to do (ala Jon Stewart).
The current administration would love for gas to be $7 – $8 – $10 a gallon. But they don’t want it to happen because of the price of crude. They want gas to be $2 a gallon and then add a $6 a gallon tax. With taxes they can control the distribution of the money. Power over the folks.
I agree with you about the Administration’s interests, although I still believe that Americans will pay anything for a gallon of gas (and for quality health care). After an initial behavior/purchasing change, people eventually adjust to the new normal and buy/drive what they want.
Five dollar gas – GM’s dreams for the Volt will finally come true.
We are once again facing a looming economic apocalypse: the return of rapacious oil price speculation. This egregious situation demands the immediate attention of our elected leaders to correct the horrendous mistakes of the past. Oil speculation in 2008 was the last straw that precipitated the severe worldwide recession, and is now returning and threatening to destroy the fragile economy and bring about a double-dip recession.
What most people don’t know is that U.S. margin rules of the Commodity Futures Trading Commission allow speculators to buy a crude oil futures contract on the Nymex, by having to pay only 6% of the value of the contract. This means that a hedge fund only needs to put up $1 to control $16 worth of oil futures. This is unique to oil among all commodities, and this extreme leverage of 16 to 1 drove oil prices to wildly unrealistic levels in 2008, and is happening again. This loophole and inequity must be stopped immediately.
As many economic experts have testified before Congress, the vast majority of oil futures trading now comes not from end-users but from unregulated futures speculation by predatory hedge funds, banks and financial groups using futures exchanges and uncontrolled inter-bank or Over-The-Counter trading to avoid scrutiny. Hedge fund managers have testified before Congress and admitted that their speculation had driven prices. While “demand in China” is certainly a factor, it is not this which is fueling the current immediate price increase – oil trading is done in U.S. dollars and largely on U.S. financial exchanges by U.S. hedge funds. Yet, no action has been taken to protect the American people.
The price of gasoline is rising again, in contrary to the fundamentals of supply and demand, just as it did in 2008. I have the misfortune of having to extensively interact with many hedge fund managers. They have boasted of their driving up the price of oil in 2008. They have greedily looked for and openly talk of the opportunity to “reinflate the bubble”, and are now gleefully rubbing their hands in repeating that disaster. They have taken Presidential and Congressional inaction on this issue to be tacit approval to once again do the same thing. This artificial manipulation of the oil market must be stopped immediately.
Of course the supply of oil in the Earth’s crust is limited, and will run out – in the foreseeable future – and alternative sources of energy must be developed. However, that is not what is happening today. If you do not want to see gas prices exceed $4 (or $5, or higher) a gallon in the near term – and for your hard-earned money to be siphoned off into the pockets of hedge-fund managers and oil companies – write to your Congressional representatives and Senators and demand that they immediately put forth legislation to direct the CFTC to eliminate the 16 to 1 leverage allowed for oil speculation, which will allow the price of oil to reflect true supply and demand. Hedge funds avariciously plundered our country and stole from the American people for their own personal profit, and cannot be allowed to destroy the fragile and floundering economy. I have personally heard it from many of these charming people….
This is not about people wanting to drive big SUV’s – this is about preventing the collapse of the U.S. economy, and protecting our ability to simply live. Oil is a strategic resource for which financial manipulation cannot be allowed – our needs must come before the influence of oil industry lobbying money. This single action would do more to help rejuvenate the economy than anything else. Artificially high oil prices cost Americans hundreds of millions of dollars per day – money which is once again being siphoned to oil related companies, which could otherwise go to rebuilding the economy.
While no one wants taxes increased, if we were able to take the long view, at the same time this also presents a unique opportunity to enable a true energy independence plan. If oil speculation were ended and the price of oil dropped to its current supply-and-demand level of around $30-$40, the price of gas at the pump would also likewise drop significantly. The federal tax on gasoline could be increased – which would still keep pump prices below where they are today – and the tax revenues dedicated to implementing a true energy independence program based on solar, wind, and renewable biofuels (or even coal liquefaction in the short to intermediate term). With all the money that was unproductively wasted on the TARP program and various corporate bailouts, and the current climate of reducing government spending, there will not be another major government initiative for the foreseeable future. This type of program is probably the only chance to fund renewable energy resources, which will simply not come from the private sector in time to do any good, because investors are too short-sighted and will not invest in anything that does not give an immediate return.
Talk about a “free market” is all well and good, and as an entrepreneur, I am a big fan of a “free market”. However, we should also realize that a “free market” and inadequate controls are what led us to the global financial mess we are now in, with a $13 trillion national debt (compared to the $800 billion surplus a decade ago), excessively easy credit which led to the collapse of the real estate markets, and financial manipulation of the oil markets. Unchecked and left to their own devices, Wall Street will find ways to manipulate the system for their own profit – at the expense of most of the rest of us. I work with these people every day (and have to shower thoroughly every night to scrub the stench off), and I know that they cannot be trusted in a totally “free market”, which brought us the current insane margin rules for oil trading.
Congress won’t do this on its own. Legislators in both parties have been extensively lobbied by the oil companies, and receive multiple millions in “campaign contributions”. I have also had the dubious pleasure of spending enough time in Washington meeting with Congressional representatives to personally see the power of “lobbying” money. They won’t act unless they feel strong pressure from us, and they get the message that they won’t be re-elected unless they do this.
Don’t let history repeat itself – write to your Congressional representatives and demand action.
For a thoughtful analysis of the situation, check out the following story by Ed Wallace from Bloomberg:
http://www.businessweek.com/lifestyle/content/dec2010/bw20101230_850060.htm
Your assessment of the situation is spot-on; leveraged speculation eliminated, a reasonable gas tax to repair infrastructure and develop home-grown energy alternatives – what could be more pragmatic and logical?
But it’s “socialism”, you realize, because “capitalism” these days has reverted to exploitation of the middle/lower class not seen since the industrial barons of the turn of the 19th/20th century – those with money and power.
Edit: Not to ignore the silver lining — the rise of gas prices, combined with the introduction of the new crop of “upscale” small cars, hybrids and PHEV’s and EV’s, should result in *reduced* consumption, which is one of the long-term goals of our energy policy.